Before the global crisis, unemployment rate had stuck at 10.3 percent. Now unemployment rate stuck at a level 1 point lower.

Labor force statistics for March were released yesterday. Unemployment rate was recorded at 9.9 percent while labor force participation rate and employment rate stood at 48.6 percent and 43.8 percent, respectively. Let me present statistics for the same period in 2011 so that these figures make a sense: unemployment rate was at 10.8 percent, labor force participation rate at 49.0 percent and employment rate at 43.7 percent. Below are some striking developments: 

At deadlock

First is that, the 0.9-point year-on-year drop in unemployment rate almost completely stemmed from the fall in labor force participation. The number of unemployed does not correspond to the difference between the population at working age and employed population. Labor force is considered as the population at the working age and willing to work; and population actually employed is deducted to calculate the number of unemployed. Therefore, when assessing the changes in unemployment rate, we must pay attention how labor force participation changed as well. Or focus solely on the employment rate. Because employment rate is calculated by dividing the number of employed to the population at the working age. As you might have noted, employment rate has increased just slightly (0.1 points) in March compared to the previous year.

And the second point: (seasonally adjusted) unemployment rate that had jumped as high as 15 percent during the crisis dropped back significantly during the process of rapid growth in 2010 and partly in 2011. Over the last seven months, unemployment rate fluctuated between 9.4 and 9 percent while the average was 9.2 percent. Neglecting minor fluctuations stemming from seasonal adjustments, we can clearly conclude that unemployment rate has been intact at 9.2 percent since September 2011.

The inertia of unemployment rate is not an unfamiliar concept for Turkey. This phenomenon was with us also during the pre-crisis period. On the other hand, Turkey’s position concerning unemployment inertia is much positive now. Before the global crisis, unemployment rate had stuck at 10.3 percent. Now unemployment rate stuck at a figure 1 point below that. Better than nothing, right? This is the third point.

Thereby emerges one of the most critical economic challenges for Turkey. Unemployment rate around 9 percent is considerably high. Of course, we can compare our performance with that of Spain and Greece and feel grateful. But Greece is on the hook of a default and Spain is on the edge right after Greece. Turkey’s unemployment rate is evidently higher compared to “normal” countries.

And please do not forget how unemployment rate settled at 9 percent: Turkey achieved impressive growth rates in 2010 and first nine months of 2011. Unfortunately, that impressive performance was not sustainable. Then came record-high current account deficits. Rightfully, fearing of the risk of a potential financial instability triggered by high current account deficit and the way of its finance via short-term capital inflows, the country introduced measures to slowdown growth so that current account deficit (the requirement for borrowing from abroad) could be eased. In a nutshell, it is not likely even to keep unemployment rate at 9 percent unless the sustainable growth rate of the Turkish economy is enhanced.

So, we are back at square one: as the seventeenth largest economy in the world, Turkey has a quite low sustainable growth rate. Turkey therefore need to endeavor to enhance the sustainable (potential) growth rate so that per capita income can be increased at least to that of Greece on the hook, and unemployment rate can be reduced permanently.

This commentary was published in Radikal daily on 16.06.2012